The Ministry of Commerce has issued a stricter, standardized set of regulations to govern foreign investment in China. The new regulations [Chinese version] stipulate that certain foreign investments in China, including mergers and acquisitions, loans, and variable interest entities (VIEs), are subject to  a security review.

Although likely stricter, a standardized review process may also clarify the often ambiguous regulations applicable to foreign-invested enterprises in China. The Director of the Ministry of Commerce’s Multinational Firms Research Department, Manqing He, stated that foreign investments should pass three reviews: industry regulations for foreign investors, an anti-trust review, and a new security examination.

A wide swath of foreign investments will potentially require security reviews: in addition to anything military-related, other critical industries include agriculture, energy, infrastrcuture, transportation, technology, manufacturing, and others that are ‘related to national security’.

Chinese regulations of foreign investment have drawn heightened attention since the Alipay controversy. In March, the US firm Yahoo (NASDAQ: YHOO) disclosed that the Alibaba Group, in which it holds a 40% stake, had transferred its Alipay online payment asset out of the Group and into a private company majority-owned by Alibaba Group CEO Jack Ma.

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The Ministry of Commerce aims to clarify and standardize the regulatory process for foreign investments. The new regulations are effective as of September 1, 2011. They were adopted on August 26 after a four-month trial period.

It is unclear whether the new regulations whether existing foreign investments in China will be subject to the review process.

This story was adopted from a Chinese-language article by CBN.

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